The Department for Work and Pensions (DWP) has made changes to the rules surrounding the National Employment Savings Trust (Nest) to remove a loophole which could have threatened its low-cost proposition.
The DWP has altered legislation to hand Nest more discretion over which self-employed savers it accepts into the scheme, where those savers are subject to the laws of another European country. It closes a loophole created when an exemption from auto-enrolment was made for UK employers with employees who are subject to the laws of another European country and who otherwise would have come under the auto-enrolment rules.
In its consultation paper on the rule changes, the DWP said the exemption ‘does not capture a person who is self-employed or a single person director. Neither does it prevent continuing contributions in respect of a qualifying person who has already become a member of Nest’.
It has now awarded Nest trustees the power to decide whether these savers should be able to use the scheme, claiming the move ‘will enable Nest to remain a low-cost proposition for its target market of low to moderate earners’. A spokeswoman for Nest added: ‘This amendment limits Nest to accepting self-employed persons that would not drive us to operate as a cross-border pension scheme, which is in keeping with a low-cost scheme.'
The DWP has also imposed a change in the Nest rules to make it explicit that employers are allowed to leave the scheme. It said that it practice employers could cease to pay contributions on behalf of a member and decide to leave, but that there was nothing in the Nest rules ‘which states or necessarily implies that an employer who participates can leave’.
A further tweak makes clear that third parties are allowed to make contributions to a member’s account, and the DWP has also changed the rules around members who have more than one contributing employer. It has clarified that all of the member’s contributing employer must make the minimum contribution, even if that causes a breach of the member’s annual contribution limit.
The rules around the payment of death benefits have also changed, allowing Nest trustees more discretion over the recipient. Trustees will now no longer be required to consider next of kin when distributing death benefits of under £5,000.
The original rules had stated that Nest should pay death benefits to the member’s nominated beneficiary or personal representative, and that where those could not be traced for pots of less than £5,000 should be paid to next of kin. But the DWP said: ‘Having such a prescriptive reference in the [rules] creates an unintended administrative burden and cost for Nest and its members, for example where the member or survivors are domiciled abroad and next of kin may be defined differently.’
The DWP launched a consultation into the changes in October last year, and said it received only two responses, from the National Association of Pension Funds and the Chartered Institute of Payroll Professionals, both of which supported them.